Doughty Hanson & Co Ltd v Roe

An expert valuation is binding unless the expert materially departs from the instructions or values the wrong subject matter. An erroneous valuation method, hypothesis or assessment of the subject matter’s attributes is a mistake within the valuation exercise and does not, by itself, invalidate the determination. In a non-speaking valuation, the court should not infer the expert’s reasoning from secondary material except in wholly exceptional circumstances.

Where articles provide for compulsory transfer at a value determined under a voluntary transfer procedure, a valuation-price notice does not carry the vendor’s contractual right to withdraw after valuation. That right applies only where a purchaser has required a valuation of a fixed-price offer.

Doughty Hanson & Co Ltd and Mr Roe were shareholders in the Company. Following Mr Roe’s resignation as a director, he was required by article 12.2 of the Articles of Association to give a transfer notice for his participating shares at fair value determined under article 11.

Mr Roe gave a notice referring both to a specified price and to valuation. PwC valued the shares at £760 each. Mr Roe challenged the certificate, alleging that PwC had valued a different, hypothetical company and had failed to follow its instructions. He also purported to withdraw the notice under article 11.2(g). The issues were whether the certificate was valid, whether withdrawal was available, and how the notice should be characterised.

1. The valuation certificate was valid. The court applied the principles in Jones v Sherwood Computer Services plc [1992] 1 WLR 277, Veba Oil Supply & Trading Gmbh v Petrotrade Inc [2002] 1 Lloyd’s Rep 295 and Morgan Sindall plc v Sawston Farms (Cambs) Ltd [1999] 1 EGLR 90. A material departure from instructions, such as valuing the wrong shares or company, could invalidate an expert determination. That was not what occurred here.
2. PwC knew the identity of the Company and the shares being valued. Its assumptions about a hypothetical sale, the continuing involvement of the principal shareholders, and the Company’s prospects concerned the attributes and valuation methodology, not the identity of the subject matter. Even if erroneous, those matters amounted to mistakes in carrying out the valuation, not a failure to perform the instructed task.
3. The court rejected an attempt to infer PwC’s final reasoning from the draft factual memorandum and related material. The final certificate was non-speaking, and the consultation process did not establish that the provisional views in the draft remained the basis of the final valuation.
4. The notice was an article 12.2 compulsory transfer notice. Article 11.2(g) contained an accidental lacuna: its wording addressed fixed-price offers and hybrid offers, but not valuation-price offers. Properly construed, a valuation-price offer did not give the vendor a right to withdraw. The same applied to an article 12.2 notice, since article 12.2 incorporated the article 11 machinery. A withdrawal right would substantially defeat the compulsory transfer provisions.
5. Accordingly, the certificate was not impeachable, Mr Roe had no right of withdrawal, and his transfer notice was irrevocable.